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FMG Law Blog Line

Archive for August, 2017

Data Privacy-As the Spokeo Turns

Posted on: August 29th, 2017

By: Jonathan M. Romvary

As we all know, the data privacy industry has been paying close attention to ongoing saga of Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), including this firm’s blog, most recently here, here and here. That spotlight is shining a little brighter on the Ninth Circuit in connection with a ruling earlier this month.

Earlier this month, the Ninth Circuit issued its most recent Spokeo decision, holding, on remand, that the plaintiff, Thomas Robins, satisfied the harm requirement for Article III standing in his FCRA claim against Spokeo. Writing for the Court, Judge Diarmuid F. O’Scannlain set forth a two-step inquiry to determine whether a plaintiff satisfies Article III standing:

(1) Was the statute at issue established to protect the plaintiff’s concrete rights?
(2) Did the specific procedural violations cause or present a material risk of actual harm to plaintiff’s concrete rights?

In regards to the first step, the Court concluded that the FCRA was intended to protect consumers from the dissemination of false information regarding credit ratings, and as such the statute was protecting a concrete right. Judge O’Scannlain reasoned that the information that was allegedly falsely reported by Spokeo is of the type that would be important to those reviewing a consumer report. Next, the Court determined that the alleged FCRA violations presented a legitimate and material risk of actual harm to the Plaintiff. It is important to note that Judge O’Scannlain’s opinion is similar to Justice Ginsburg’s dissent to the Supreme Court’s recent majority opinion, focusing its analysis on the potential harm to the plaintiff’s financial prospects in the workforce as a result of the allegedly false information.

Plaintiffs in data breach litigations are likely rejoicing in the Ninth Circuit’s most recent ruling. Judge O’Scannlain’s opinion effectively dilutes the requirement that concrete harm requirement to standing, and making it easier to maintain their litigation. Relying upon the opinion, an affected individual may argue that, similar to Robins, the potential harm to their financial prospects as a result of a data breach involving credit information is sufficient to satisfy Article III standing. The mere prospect of a harm may now be sufficient to maintain standing, at least before the Ninth Circuit.

However, it is not all bad news for defendants in data breach litigations as it is likely that application of the Ninth Circuit’s ruling will be limited. The fact-intensive analysis by the Ninth Circuit suggests that it will be difficult if not impossible to apply the ruling in a class action context. Further, the Ninth Circuit’s opinion clearly distinguished between threat of harm and threat of the statutory violation itself: while a threatened statutory violation would not satisfy standing requirements, the court concluded that an actual violation accompanied by a threatened harm was sufficient. This likely limits data breach plaintiffs until they can show an actual statutory violation by the defendant company. Finally, this opinion does nothing to bridge the significant circuit split interpreting Spokeo (see In Re: Horizon Healthcare Services Inc. Data breach Litigation, No. 15-2309 (3d Cir. 2017) v. Gubala v. Time Warner Cable, Inc., No. 16-2613 (7th Cir. 2017)).

Unfortunately, we likely wait for the inevitable petition to the U.S. Supreme Court for more guidance.

Remember, the Cyber, Data Security, and Privacy practice group attorneys are here to assist you in responding to data security incidents. Please contact Jonathan Romvary at [email protected] if you have any questions or would like more information on how this developing issue of standing may affect your company. 

Adverse Coverage Ruling Has a Silver Lining

Posted on: August 28th, 2017

By: William H. Buechner, Jr.

The Georgia Court of Appeals recently ruled for the first time that an insurer may not rely on coverage defenses set forth in a reservation of rights that was sent before the insurer later disclaimed coverage. The Court also held that the insurer waived a counterclaim for rescission by denying coverage after learning of alleged misrepresentations by the insured in the application, by treating the policy as valid with respect to other claims in other cases, and by waiting approximately six months before asserting rescission as a counterclaim. American Safety Indemnity Co. v. Sto Corp., 2017 Ga. App. LEXIS 339 (June 30, 2017). In a silver lining for the insurer, however, the Court held that the insurer could not be held liable for bad faith pursuant to O.C.G.A. § 33-4-6 because the issue as to whether reservation of rights letters are still effective after the insurer later denies coverage had never been squarely addressed by Georgia courts and because there was some evidence in the record that could have led the insurer to believe that the reservation of rights letters had been sent to the insured.

In light of the Sto ruling, insurers issuing Georgia policies cannot rely on coverage defenses contained in a reservation of rights letter if it subsequently disclaims coverage. If the insurer initially disclaims coverage but changes its mind and decides to defend the insured under a reservation of rights, it must send the reservation of rights letter to the insured before it undertakes the defense of the insured. The insurer’s failure to do so may result in waiver of all coverage defenses. Finally, if an insurer concludes that the insured made material misrepresentations in the application for insurance, the insurer must promptly inform the insured of its intent to rescind the policy as void and then actually treat the policy as void. Sending a disclaimer letter or handling other claims under the policy as if the policy still exists may constitute a waiver of any rescission claim the insurer may have.

On the bright side, Sto provides some reassurance that Georgia courts will reject bad faith claims under § 33-4-6 where the denial of coverage is based on a legal issue of first impression or where the insurer otherwise has a reasonable legal or factual basis for denying coverage.

If you have any questions or would like more information, please contact William H. Buechner, Jr. at [email protected].

 

Making Wise Choices-of-Law

Posted on: August 24th, 2017

By: Michael Kouskoutis

Recently, insurers for Coca-Cola denied coverage on a claim presented under a political risk policy, after a blockade prevented the beverage giant from importing supplies required for soft-drink production. The blockade was the result of political tumult in Nepal, when the Madhesi—an ethnic minority—blocked the India-Nepal border in protest of Nepal’s newly adopted constitution.

Coca-Cola filed suit against its insurers in a Georgia federal court, alleging breach of implied duty of good faith and fair dealing, seeking a declaratory judgment, $1 million in losses, bad faith and attorneys’ fees. The insurers recently moved to dismiss the suit, arguing that despite the policy’s New York choice-of-law provision, Georgia common law should apply because there exists no pertinent New York statute regarding good faith claims or attorneys’ fees. This argument is rooted in a rule recently discussed by the Georgia Supreme Court, that in the absence of a foreign statute on point, “at least with respect to a state where the common law is in force, a Georgia court will apply the common law as expounded by the courts of Georgia.” Coon v. Med. Ctr., Inc., 797 S.E.2d 828, 834, 300 Ga. 722, 729 (2017).

Further, the insurers urge that either way, neither New York nor Georgia common law permit such claims under these circumstances. Moreover, they argue that “breaching the duty of good faith and fair dealing supports only a breach of contract claim and does not provide the basis for a separate cause of action.”

These arguments add yet another layer of complexity over issues surrounding choice-of-law provisions, and insurers should keep in mind that the law chosen to govern a policy may not necessarily be the law that will govern. We will continue to keep insurers apprised of developments in this area as they occur.

If you have any questions or would like more information, please contact Michael Kouskoutis at [email protected].

Write Like You Mean It

Posted on: August 21st, 2017

By: Melina Shahbazian

The First Appellate District of the California Court of Appeal in Duarte v Pacific Specialty Insurance Company (2017) 13 Cal.App.4th 45, recently sent this message to an insurance carrier who attempted to rescind an insurance policy due to a material misrepresentation. In Duarte, the owner of rental property applied for a landlord insurance policy with Pacific Specialty Insurance Company by filling out an electronic application, and Pacific issued a policy the same day. Few months later, a tenant filed a lawsuit against Duarte alleging habitability defects, and Duarte tendered to Pacific. Pacific denied coverage and then sought to rescind the policy based on material misrepresentation on the application. Duarte filed a motion for summary judgment on his claim for declaratory relief and argued that he was entitled to a ruling that Pacific owed him a duty to defend the tenant lawsuit. Pacific filed a motion for summary judgment and argued that it was entitled to rescind the policy.

At issue were Question No. 4 and Question No. 9 of the insurance application. Question No. 4 asked Duarte “Has damage remained unrepaired from previous claim and/or pending claims, and/or known or potential (a) defects, (b) claim disputes, (c) property disputes, and/or (d) lawsuit?”, and Question No. 9 asked Duarte “Is there any type of business conducted on the premises?”. Duarte answered no to both questions.

The Court of Appeal reviewed the grant of the motion for summary judgments de novo, and held that Duarte reasonably interpreted Question No. 4 to be asking whether there were previous or pending insurance claims, and Question No. 9 to be asking whether there was regular and ongoing business activity on the premises, to which he answered “no”. The Court further held that Pacific could not rescind the policy based on misrepresentation because the questions contained “garble syntax” and were utterly ambiguous, and the insured’s interpretation of those questions were reasonable.

While the Court of Appeal held that ambiguous application questions precluded summary judgment on the insurer’s claim that they were entitled to rescission, the Court did affirm that the procedure used by the insurer was supportable and that an insurer may seek rescission by asserting rescission as an affirmative defense to its insured’s lawsuit and to do so the insurer is not required to file a cross-complaint for rescission.

If you have any questions or would like more information, please contact Melina Shahbazian at [email protected].

Salary History Bans: A Growing Trend

Posted on: August 18th, 2017

By: Allison S. Hyatt

More than 50 years have passed since Congress passed the Equal Pay Act of 1963 requiring employers to pay men and women “equal pay for equal work.” In recent years, cities and states around the country have broadened employee protections as lawmakers seek to curb longstanding gender-based wage disparities in the labor market. Laws prohibiting employers from asking salary history information from job applicants are among these protections.

The City of San Francisco is the latest jurisdiction to ban the practice of requesting salary histories from prospective employees. San Francisco Mayor Ed Lee signed Ordinance No. 170350 on July 19, 2017 making it illegal for employers to seek salary histories for any candidate seeking to work within the City’s geographic boundaries.

Other cities and states that have adopted similar bans include:

Massachusetts. Massachusetts became the first state to prohibit salary history queries from employers with the passage of its Pay Equity Bill in 2016. The law bars employers from asking prospective hires about their salary histories until after the employer makes a job offer that includes compensation. The law takes effect July 1, 2018.

New York State. Governor Cuomo signed Executive Order 161 on January 9, 2017 prohibiting New York state agencies from asking, or mandating in any form, that an applicant provide current or prior salary information until such time as the applicant is extended a conditional offer of employment with compensation.

Philadelphia. On January 23, 2017, Philadelphia became the first US city to adopt its own salary history ban prohibiting employers, including private employers, from asking candidates about their wage history or relying on such information in setting compensation.

New Orleans. The City of New Orleans was next to follow suit with an executive order signed by its mayor on January 25, 2017 prohibiting city agencies from seeking salary histories from candidates during the application and interview process.

Pittsburgh. Five days later, the mayor of Pittsburgh signed a bill on January 30, 2017 that prohibits the city from asking job applicants for information regarding past wages or relying on salary history information in the employment process.

Puerto Rico. Puerto Rico became the first U.S. territory to enact its own Equal Pay Act on March 8, 2017. Like other salary history bans, the law prohibits employer inquiries into applicants’ current or past compensation rates.

New York City. On May 4, 2017 Mayor Bill de Blasio signed a bill to amend the New York City Human Rights Law to include restrictions on New York City employers from relying upon or making inquiries regarding salary histories from prospective employees. This prohibition applies during the hiring process, including contract negotiations. The bill will become effective on October 17, 2017.

Oregon. Oregon joined the list of states banning salary history questions on June 1, 2017 when Governor Kate Brown signed its Equal Pay Act of 2017 into law. The law’s prohibition regarding salary history inquiries takes effect on September 9, 2017. The Act prohibits employers from asking about an applicant’s current or past salary information prior to an offer of employment.

Delaware. On June 14, 2017, Delaware Governor John Carney signed into law a bill that amends Delaware’s Code relating to unlawful employment practices to prohibit employers from engaging in salary-based screenings of prospective employees or seeking the compensation history of a job applicant from the applicant or a current or former employer.

More than two dozen other states are also considering legislation that would bar employers from asking job candidates about prior salaries. In the midst of this changing landscape of pay equity laws across the country, employers must navigate a myriad of sometimes conflicting federal, state and local laws governing use of salary history information. For instance, California state law currently does not directly prohibit employers from asking candidates about their past compensation; however, recent amendments to California’s Fair Pay Act do prohibit Employers from using salary histories as the sole justification for any disparities in compensation.

To ensure compliance with the growing trend of salary history bans, employers should consult with counsel to carefully assess their hiring practices and evaluate how new equal pay laws may impact their organizations.

If you have any questions or would like more information, please contact Allison S. Hyatt at [email protected].